How a novated lease really compares to buying
A novated lease lets your employer pay your car costs from your salary, mostly before tax. That pre-tax treatment, plus not paying GST on the car or its running costs, is where the savings come from. But there's a catch at the end — the residual — and the maths swings hard depending on whether the car is an electric vehicle.
The electric-vehicle game-changer
Eligible electric and hydrogen vehicles priced under the fuel-efficient luxury-car threshold ($91,387 for 2025-26) are exempt from Fringe Benefits Tax. That's the difference between a good deal and a great one: with no FBT, the entire lease — finance and running costs — comes out of pre-tax salary, and you skip the post-tax contribution that petrol and diesel cars need. It's why an EV novated lease can save many thousands a year, while an equivalent petrol car saves far less.
What petrol and diesel cars face
For a non-exempt car, the lease would normally attract FBT. To avoid that, providers use the Employee Contribution Method: you pay part of the cost — roughly 20% of the car's value each year — from post-tax dollars, which cancels the FBT but also eats into the tax benefit. New plug-in hybrids lost their exemption from 1 April 2025, so they're treated like petrol cars here.
Don't forget the residual
At the end of the lease you owe a residual — a set percentage of the car's value (28.13% for a five-year term), paid from after-tax dollars, with GST on top. To genuinely compare against buying, you have to count it: in this calculator both paths end with you owning the car, so the residual is included in the lease cost. The risk worth knowing: if the car's used value has fallen below the residual — a real possibility for EVs as prices drop — you wear the shortfall.
And what about just paying cash?
If you have the savings, paying cash avoids all interest — but it isn't free. The money you sink into the car could have stayed in your offset account or an investment, so the fair comparison counts that opportunity cost. Set the rate to what your cash would otherwise earn (your offset or mortgage rate is a sensible proxy). When that rate is low, cash often wins; when it's high, financing and keeping your money working can come out ahead. That's why this tool puts all three side by side rather than declaring one universal winner.
How we calculate this
- Lease cost = finance (amortised to the residual) plus running costs, with GST removed; the pre-tax part is converted to after-tax dollars using your marginal rate (via the same engine the rest of the site uses), the ECM part stays post-tax, and the residual is added at the end.
- Buy cost = a car loan over the same term on the full GST-inclusive price, plus running costs — all from after-tax dollars.
- Both finish owning the car, so its end value cancels out of the comparison.